Has Deflation Killed the Japanese Economy?

Conventional wisdom in economics says that deflation is bad because it motivates consumers to put off purchases. Why buy now when the same item will cost less a year from now? Dean Baker isn’t so sure:

Japan’s rate of deflation has only exceeded 1.0 percent in 2009. With a rate of deflation of 1.0 percent, a $20,000 car would sell for $100 less if buyers waited six months. It is unlikely that many consumers will make that decision. In this respect, it is worth noting that computer prices have fallen at double digit annual rates for most of the last four decades. This has not impaired sales in the computer industry in any obvious way.

Not only is this true about computers, it’s famously true. People even complain about it. And yet we all keep buying computers by the truckload.

That said, deflation makes the zero-lower-bound problem even worse. How does a central bank stimulate the economy when a 0 percent interest rate is not merely an inadequate stimulus, but a negative one? For this reason, it’s probably best to keep the inflation rate positive regardless of whether it has an effect on consumer spending.

Baker’s larger point, by the way, is that Japan’s economy over the past couple of decades has basically been fine. He’s right.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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